The Semtex in the AIG Retention Contracts
Here’s how I understand the white paper AIG just used to convince Tim Geithner that, while the US government can force car companies to cut the wages of line workers, the US government cannot force banksters to cut the wages of the thugs who broke the global financial system. There’s a lot of mumbo jumbo about contract law, but that’s not the real reason AIG is arguing Geithner can’t strip the bonuses. It’s the "business reasons" that amount to a deliberate threat:
For example, AIGFP is a party to derivative and structured transactions, guaranteed by AIG, that allow counterparties to terminate in the event of a “cross default” by AIGFP or AIG. A cross default in many of these transactions is defined as a failure by AIGFP to make one or more payments in an amount that exceeds a threshold of $25 million.
In the event a counterparty elects to terminate a transaction early, such transaction will be terminated at its replacement value, less any previously posted collateral. Due to current market conditions, it is not possible to reliably estimate the replacement cost of these transactions. However, the size of the portfolio with these types of provisions is in the several hundreds of billions of dollars and a cross-default in this portfolio could trigger other cross-defaults over the entire portfolio of AIGFP.
Translated, I take that to mean that AIGFP is a party to a bunch of contracts insured by AIG the US government. And if AIGFP somehow does something that equates to a default on those contracts, then AIG the US government is on the hook for hundreds of billions of dollars.
The white paper goes on to explain just one scenario that might trigger a default in terms of these contracts.
Departures also have regulatory ramifications. As an example, the resignation of the senior managers of AIGFP’s Banque AIG subsidiary would allow the Commission Bancaire, the French banking regulator, to appoint its own designee to step in and manage Banque AIG. Such an appointment would constitute an event of default under Banque AIG’s derivative and structured transactions, including the regulatory capital CDS book ($234 billion notional amount as of December 31, 2008), and potentially cost tens of billions of dollars in unwind costs. Although it is difficult to assess the likelihood of such regulatory action, at a minimum the disruption associated with significant departures related to a failure to honor contractual obligations would require intensive interactions with regulators and other constituents (rating agencies, counterparties, etc.) to assure them of the ongoing viability of AIGFP as well its commitment to honoring counterparty contracts and claims.
I take this to mean that if a bunch of AIGFP managers quit because they didn’t receive bonuses promised in their contracts, then France could, if it wanted, to appoint its own designee. And if that happened, then it would equate to a default and those contracts would kick in, at a cost to AIG the US government of at least tens of billions.
In other words, I take this to be a threat: "if you don’t give us our bonuses, we’ll trigger a default event that will cost AIG the US government tens of billions of dollars." It’s just a polite way of saying, "Pay us the $100 million ransom or we start exploding the suicide bomber vests we’re wearing."
Frankly, I have no idea whether this particular threat–France responding in a way that would set off a default–is real, or whether there are similar events that those AIGFP managers demanding their ransom could easily trigger.
But what they’re doing is pointing to one relatively preventable area, noting that we might be able to defuse the explosion before it went off if we worked hard enough with the French, but saying that that, in general, is the kind of thing the AIGFP managers might contemplate if they don’t get their bonuses.
AIG agreed to pay the guys whose gambling AIG the US government insures hundreds of millions of dollars in bonuses. And the gamblers are now saying they would be willing to blow their own gambles–ignite their semtex vests–if we refuse to pay up.
Sounds like a terrorist threat against the US and should result in Homeland Security treating AIG as a terrorist organization. Anyone investing in AIG would be liable to prosecution. Now that would be fun!
My ancestors in the Highlands used to do this sort of thing, and invented the word for it: blackmail (although I’m sure the actual practice is timeless).
There has to be some way, short of torches and pitchforks, to stop these guys.
I’m curious EW, do you think that Paulson et al. were oblivious to these contract obligations before they put the US on the hook for AIG’s obligations or do you think they knew and thereby protected their chums who otherwise might have found themselves SOL on multiple levels?
They knew.
The incestuous relationships here make the DOD/Military Contractors revolving door look downright respectable.
How on earth could they not have known?
I still don’t fathom how much of this is some kind of weird extortion that involves national security issues, and how much of it is the arrogance and ego of these fuckwits who think they are so important, such MastersOfTheUniverse, that nothing they touch can turn to ruin.
They call to mind the old tale of Midas, who starved to death because ‘everything that he touched turned to gold’ — even his own food.
I think the latter enabled the deliberate creation of a tanglement that at least mimics the former, without the slightest rustling of conscience.
Some day I picked to show online late, eh?
In 2000, the CFMA (Commodity Future Modernization Act) was passed through the US Senate. See Wikipedia for ‘CFMA’ if you’d like more details, but I’m putting a relevant bit in this comment; as far as I’m concerned, Sen Phil Gramm (R-Texas) ought to spend the rest of his life in a federal penitentiary. He was McCain’s Economic Advisor until last summer, and also connected with UBS, which is evidently under scrutiny from US law enforcement for banking secrecy.
The changes to the CFMA in 2000 did two key things:
– 1. Removed credit default swaps from regulatory control by claiming that they were ’swaps’ rather than derivatives.
– 2. Removed them from “Bucket Shop Laws” which regulate gambling.
Call me a Tin Foil Hat wearing DFH lunatic, but I’m damned if I don’t suspect that there’s a connection between the London — totally unregulated — oil swap markets, and the fact that it was AIG’s London division that got into real trouble.
Several years back, FDL Book Salon hosted Mr. George Soros for a discussion of his ‘The Age of Infallibility”, which covered many topics, among them the fact that Russia was making a lot of money via energy. Now, what was Enron trading? Energy FUTURES.
And what did Phil Gramm remove from regulatory oversight in our modern, global finance era? Energy FUTURES.
And then Texas oil guy GWBush came to office on a SCOTUS decision, a rampant, irrationally vehement global warming denier. With Cheney doing the Dark Side work out of the OVP.
And these energy pimps didn’t know what was happening?
If I were watching from the rings of Saturn, I’d assume that somehow the Russian Mafia, drug cartels, and heaven-only-knows who was swapping contracts via the London division of AIG with full, predatory, deliberate, premeditated knowledge.
And note that ‘mark to market’ accounting rules show up both in Enron’s disaster, and also in this AIG-global finance meltdown. Not that it should be an excuse for fuckwits to hide behind, but someone needs to excise that diabolical mess.
That and perhaps the fact that in a speech not so many months ago at his Labour party congress, PM Gordon Brown said London would become the world’s financial capital. Hmmmm.
Either they knew or should have known. the Govt took over AIG in mid-September. The first payout under the contracts occurred in December, after the US had replaced AIG management and installed Edward LIddy.
I have wondered the same thing… As Peterr said it in #10, they are incestuous relationships. The fact that the Bush administration allowed the US to be put on the hook to bail these people out needs to be shouted from every mountaintop. We will never be able to restore any semblance of our economy.
Those are some emails I would like to see someone get a hold of via FOIA… Any and every thing related to the bailout. I want to know how they decided who to bail out, on what terms, and whether they did due diligence to find out what the government was getting the taxpayer into. If we can find evidence that they knowingly were putting the interests of fraudulent, corrupt, potentially criminal, executives ahead of the taxpayer, then I would hope Paulson et al. could be sued (along with the corporate execs) for defrauding the government.
Yes, we need some extraorinary retention. If we’d used this method in Iraq, no one would have been shooting at us.
Stalin had an interestng pair of turns of phrase which AIG and its bonus recipients would do well to remember:
1. The term “wrecker(s)”, applied to (a) those designated to be the scapegoat (deservedly or not) for failure of one or more parts of the Soviet economy to meet or exceed the goals of the five-year plan or (b) those running the machine when it wore out and broke down.
2. “No man, no problem.” The rationale commonly applied to wreckers.
What it comes down to here is that AIG and its band of criminals (particularly in the London CDO/CDS shop) wrote a box of contracts which not only guaranteed them bonuses regardless of performance, but also made certain that failure to pay up would blow up the whole system. Frankly, it is no different on a philosophical, logical or moral level from a welfare recipient holding a gun to a government employee and demanding money regardless of anything.
In my book, the common parlance, that’s called “extortion” though likely it would not meet the statutory definition of that crime. It also reeks of fraud.
The welfare recipient scenario would likely meet a quick resolution at the hands of the police. The scammers at AIG should have their scenario meet the same resolution.
Or, we could just send them (being that they’re out of the country and all) off to Gitmo. I hear Cheney says it’s a tropical paradise and the meals are great. And, last I heard, there’s space opening up there….
Another way of dealing with the problem.
Why does Cleavon Little come to mind? “Next man makes a move . . .”
“This never would have happened to Randolph Scott!”
Maybe
Cheney’sObama’s CIA hit squads can be kept out of other trouble by going after these blackmailers.OK, so it looks like the US Gummint is being held up by an International extortion racket. Geithner needs some help here from the FBI, DOJ, CIA, and DOD. For example, they could put their heads together and discover, lo and behold, a particular provision of law that enables them to tax those bonuses at a rate of, say, 95%.
Meanwhile, an intense investigation could be publicly announced (or privately leaked) that the recipients of these bonuses were being investigated for fraud and other irregularities, and put a lot of “heat” on them of a kind such privileged folks seldom experience. We could do a “Spitzer” on them, one by one. We could start by naming them, one by one, in high profile news stories, itemizing the privileges they enjoy, and the harm they have caused– all based on iron-clad evidence, of course, not rumor-mongering.
BTW, we are all here pretty united around the idea of the rule of law, and I am, too– 99%. But there are also times, and this looks like one of them, when the law is being used as a club by the privileged to protect their own rackets at public expense.
Perhaps this crowd is a remnant of the British Empire, which started on Fleet Street, and has retreated to Fleet Street, only to colonize in new and sophisticated ways.
Time for another Tea Party?
Bob in HI
Bless you for this, bobs:
At least there’s one other soul on the planet who’s nuts in the same fashion that I am.
———————–
FWIW, I did upgrades to my Mac, which knocked out my online, real-time functionality for Netflix online. But I still get C-SPAN in all its Congressional glory. So I’m now catching up on my knowledge of certain topics, as some of my work is actually more productive if I have some kind of noise/activity on in the background. If these jackasses keep up the criminal pace they’ve created, I’m not sure when I’ll get back to watching real movies again… sigh….
Beware upgrades to your Mac OS if you like to watch Netflix online 8-((((((((((
Have you called Netflix tech support? They’ve been pretty helpful to me — eventually; it might take two calls to get someone who deals in actual details. What seems to be working these days on PCs is FireFox with a SilverLight player. I’m guessing that if there’s a browser for the Mac that likes SilverLight (and vice versa) then that’s the way to go.
It’s time for something big.
If you read Michael Lewis’ “Liars’ Poker”, I believe you’d come away thinking quite differently, & that this is a case of the imperial pupil outstripping the formerly-imperial teacher.
I am thinking now that the Fast Hands People at AIG had to have planned this gambit some time ago:
[a] AIG is in essence an insurance company;
[b] AIG is not merely the biggest insurance conglomerate in the world – it’s the biggest insurer in the history of human civilization that isn’t a nation;
[c] to get that big, AIG ate up an awful lot of competition over the years, & by that approach plus the attraction of being the Biggest of the Biggies, it attracted vast hordes & all manner of Very Deep Money Thinkers;
[d] on becoming the B of the Bs, AIG was able to take on a role that, before the GWB administration, had been served by each bank’s [and each “bank’s”] own asset base: providing the same as insurance for its regular ongoing ‘banking’ transactions [special thanks goes to Phil Gramm for this gift];
[e] the burden of taking on that role meant that AIG for all practical purposes took on the crucial role of rating risk: after all, it doesn’t really matter what the rating is from Moodys or from S&P so long as AIG decides for or against taking on the risk; with the result that Moodys & S&P effectively had only one organization to rate: AIG
[f] gradually, looking at it from the point of view of Moodys & S&P, granting to AIG anything less than a triple A rating would appear suicidal;
[g] the trade-off for AIG taking on all those ‘banking transaction’ risks was that it could take advantage of its ‘built-in’ triple A rating by choosing to underwrite just about any loony scheme that came along – at least so long as the upside of said loony scheme was primarily to go to AIG;
[h] despite that the news didn’t hit even the business pages of the legacy media until the spring of 2007, we know from Bernanke, Paulsen & Geithner themselves that the US Fed & the little Feds were working in active consultation with Treasury on the early stages of this mess at least as early as the spring of 2006;
[i] despite that we knew generally of the de-coupling of US government agency oversight & the Wall Street money markets, & that we all know NOW about Paulsen’s departing gift to his colleagues on Wall Street with the last major act of de-coupling in 2003, with the SEC agreeing to go with don’t-ask-don’t-tell, somehow that last bit was thoughtfully kept from us, along with the rest of the world, until after the 2008 presidential election;
[j] but there was also the additional risk that the Dem candidate might win, & as 2008 went on, the further risk that said Dem might be something of a clean slate on such shenanigans;
[k] moreover, with the take-out of Bear Stearns in the spring, the possibility of serial collapse of workplaces started to become inescapable;
[l] all of this suggesting that from some point it would have been in order for AIG to further INSURE itself against collapse; and thus
[m] the apt image offered by Fearless Leader.
there’s one bit not included in the list or in most assessments of AIG, and that is most of the largest manufacturing companies in the U.S. and abroad have captive insurance companies which are embedded in their risk management processes, which in turn participate in these CDS.
i’m positive the government is trying to get a handle on this situation, but it’s a shoe that hasn’t dropped; what if the failure of AIG cascades to these manufacturing companies because they are bought into these “swaps”?
Yeah, the economy is held hostage. Of course, you have to wonder what kind of people run such a company and would threaten their own nation with disaster if they don’t get the complete bailout, despite all their stupidity beforehand.
I tip my cap to you.
BTW: How much whiskey should I purchase before I start reading “Liar’s Poker”?
My daughter told me there is a Tea Bag Movement. Idea is for everybody to mail a single tea bag to the W H on April 1 so a kajillion tea bags all swamp the White House at same time. Just letting Obama know this crap is not what we voted for. I’ll see if I can learn more online.
that’s a republican propaganda movement, phase two of the last tea party spawned by the republicans. Santelli’s outburst was part of phase one.
I can’t support it because it’s empty gesturing which improves republican position at expense of actually getting anything constructive done.
Thank you both, Rayne and Prof. Foland @ 76. I figured someone here at FDL would give me the straight scoop on the tea bag movement. I get so frustrated at being helpless to influence anything our government does that almost any pushback looks good.
Here’s the thing. With the original Tea Party, the colonists were doing true pecuniary damage–the tea concession a valuable asset of the Crown.
As long as today’s protests are symbolic, the “taxpayer protection measures” will be symbolic.
Just sayin’.
hmmmm.. looks like it’s time to pull the plug on AIG and let them circle counter-clockwise down the drain .. their southern half transaction can circle clockwise .. effectively shredding all those contracts and obligations and bonus’es et alia ..ad whoever the counterparties are they can be faced with the age old dilemma of trying to get blood out of a turnip ..
this whole scam with the CDO’s amd CDS’s was deliberately structured to avoid tripping the wire as “insurance” because insurance is a regulated business with set levels of reserves .. reality based limits on what defines calculated and reasonable risks .. which enabled this whole series giaganormous tranches and tiers which no reasonable person would have participated in under normal rules of business ..
imo .. neither AIG .. nor it’s counterparties .. nor any of the croupiers should have the reasonable expectation of realizing a profit from this giant crap shoot ..
effectively this was an illegal game of craps .. when the system fell apart and the cops were forced to raid the game the “playahs” lost their dough .. now .. not only do they expect to escape prosecution for having staged an illegal game .. and get all their stakes money back off the table .. they also expect to have the bets paid as well .. including all odds-bets as placed .. as if the shooters had rolled their points .. instead of havng crapped out ..
enough is enough .. nationalize AIG .. default on the naked CDO’s .. let the injured get ther lawyers and take a number ..
otherwise ..imo ..we are rewarding illicit behaviors .. and creating an incentive to do likewise again .. maybe if the miscreants have to eat all these exceptionally creative financial-gar’bage instruments of mass destruction .. they’ll be more circumspect when creating the next all-new-magical-too-good-to-be-true-can’t-lose parchments of flim-flam ..
how come everyone and everythig is a “at risk” except the bankrolls of card-counters
trying toummm.. scamming the house ..many many of the common people have lost their 401k’s .. their homes .. their jobs .. their expectations of a “future” .. wiped out .. but the banker-hedge-fund classes expect to suffer no penalty or stand any loss from their behavior ..
we are dead in the middle of socializing away any losses .. but allowing the extreme profits preceeding the fall to remain private ..
do i care if the rich might have to sleep under the same bridges as the poor … no i don’t ..
screw the ultra-marketeering class .. they should have no reasonable expectation of not having to suffer the consequeces of having gamed the system into oblivion ..
Suggested Amendment to the bailout bill: If it’s spelled “banque”, it doesn’t get any bailout money.
I second the calls for extraordinary rendition. Kill two birds with one stone. The village would put an end to the heinous practice once they see Wall St capitalists. And the other bird being supreme schadenfreude.
A couple of thoughts:
– deduct the amount of the blackmail from the Fed payments.
– challenge the AIG” to default onthe bonuses and, see you in court.
– Declare the “contracts”, after the bailout, as null and void and , see you in court.
– posture the defense in court on the theory of fraud with the AIG factotums having been aprised of the situation and knowingly going ahead with the bonues.
– appeal to the common sense of the AIG jerks to relinquish bonuses in the spirit of what we are all in together or, I’ll see you in court
i.e., the Feds have the bucks. Let the AIG jerks take the initiative to get into court and argue the ‘legal’ points against the ‘legal’ points. Hey, how about equity court?
Wouldn’t it be an easy way around all the contract hoopla if congress just wrote a tax bill
that taxed any compensation over $250,000 at 100% for employees, contractors, workers, etc of any company that received bailout funds.
I really want to set it at 110% because I think the taxpayers are owed some interest on that bailout money, but I am willing to go down to 100% if needed to reach a deal.
Oh believe me, I’ve been there for years now. AFAIC, that CFMA together with the bankruptcy revising act (wasn’t that also a ”Modernization”? Not sure if that makes me postmodern or luddite.) is the smoking gun, the firing on Sumpter, whatever.
Feingold is challenging the bonuses.
Also possibly of interest, Willem Buiter has this presentation that it seems AIG made (presumably to Treasury) just before the last round of bailout money at the end of February.
Right. And I bet that some, if not all, of the people that created that earlier scare show also created the one we are seeing today.
Shorter page 17: “Nice municipal bond market you got there. Probably real good for orphans and widows and schoolkids. Be a shame if anything happened to it…”
Yes, I think that would be the same crew.
You know, now that I look back on that PPT, I badly want one of these fuckers to be captured on tape saying, “what are they going to do? let us fail? we’ll screw them. we’ll take out grannie and main street and so on if they try to dissolve us.”
THAT might finally get us to pitchforks.
I wonder. It’s hard to imagine that there’s anything that will get us to pitchforks…
I’m beyond ready.
heh, you and me both, except my outrage meter kept blowing up and I’ve let the maintenance contract slip.
.
Does anyone get the sinking feeling that wars have started over far less?
And it not just the financial bailout. It’s everyfuckingthing. Crap war, torture, religious crapola. Everything. I think we’re at the boiling point here.
I need to act or take some meds.
The “smartest people in the room” would suddenly look like the vilest, stupidest f’ing people on the planet. Doug Feith would look intelligent by comparison. Heck, even Osama bin Laden wouldn’t seem so dangerous by comparison.
OT – Pakistan backs away from meltdown and Zadari agrees to re-seat deposed Chief Judge Chaudhry.
http://news.yahoo.com/s/ap/200…..s_pakistan
OT, but in response: I fear that this is going to be a very temporary reprieve. Zardari is weak and corrupt, and I don’t know that Sharif can do much better, given how many splits and tensions there are in the country as a whole. Good overview in the NYRB (12 Feb 2009) by William Dalrymple, ”Pakistan in Peril.”
There are many criteria for bonuses.
Think of a hockey team. Players can achieve bonuses by scoring goals, scoring winners, having an excellent +/-, exceeding certain quotas of on-ice time, makes all-star team, makes various rounds in the playoffs, etc. That doesn’t mean the team wins every night, or even makes the playoffs. But if it’s in the contract, they are entitled to the bonus.
Similar criteria are used in business. Doesn’t mean that the individuals can’t be shamed into relinquishing their bonuses. I suggest that a bonus wall of shame law be passed. Bonuses and detailed reasons for bonuses, for any company accepting bailout funds, be made public for anyone earning more than 3% of their income in bonuses.
If they entered into the contract KNOWING that AIG was headed for the toilet, we’ve moved from contract-related bonuses into premeditated fraud.
Until AIG coughs up the actual contracts, as well as some documents to validate the negotiations on said contracts, we don’t know which of these two scenarios we are dealing with.
Peter, doesn’t the way this looks, is set up and structured, heck just the whole feel of it, just scream out that the FP division knew what they had wrought and wanted to lock in their continued raking in the face of the coming unwinding?
Maybe it would be cheaper to buy the French portion of the contract AIG guys are so afraid of. Then the US lets the Ponzi scheme unwind harmlessly into a pile of string, owning both ends of the deal
Or will this just prolong the annoying threats? Or is this what they want us to do?
I could be wrong, but I think the French example is just that–one possible example of many.
I got the impression that AIG already owned or controlled a decent portion of the French firm, likely as much as they can under French law. Problem is, it is a French institution, not US. And yes, I think there are several of these.
YEah. My point being is that it’s not so much about responding to this fairly concrete example. it’s just understanding that the derivatives guys may or may not have our nuts in their teeth. But i”m not sure we have the competence to know where they do and where they don’t, and that’s what they’re counting on.
It could be France, it could be Hong Kong, it coudl be Tokyo. And if we fail to anticipate one of them, they seem to be saying, the global economy gets it.
Last i checked, the wrath of hell can flow both directions, maybe they just need to be reminded of that directly and clearly. And you know threatening global economic doom over pecuniary gain could be considered a terroristic threat (and a far worse one than most we kick the bejeebies out of) if you get my drift.
If a group of forty mere executives threatened our oil supply in a similar situation, what would we do – bend over and say uncle? I don’t think so.
Perhaps we should make them receive their bonus payments in pennies and collect it on live teevee for the world to see.
We just need to be more creative here…..
Yeah, that’s more succinct than the way that I stated it in my previous comment.
But I’m with you on this point. In spades!
How in hell is making a threat of this nature NOT a terrorist threat?
NO! Wouldn’t the copper in the pennies be worth more than the dollars?!
You’re one of the lawyers around here. Do you seriously think such a charge could stick?
Remember, the federal govt has pretty unchecked power in declaring people terrorist groups. Or, if you’re represented by the future AG, it has the power to get rich white supporters of terrorists off the hook.
I agree bmaz, this just feels like extortion, but we need to make sure that we are clear that it is not only the bonuses that are offensive. The bonuses are just a symptom of the larger issue: why the hell are all of the executives at all of these companies still employed?
If the taxpayers are on the hook to keep their businesses afloat, then we should get to decide who works for us. I want the executives and the boards of directors summarily fired. I want entirely new people going through the books in an open and transparent process for all the world to see. I want crimes prosecuted where appropriate. I want a new regulatory system that collapses our two markets (the pretend long-term 401k market and the real short-term hedge-fund riddled shadow market) into one market with open and transparent business practices with proper regulation to keep playing fields level.
In short, I want the government to start acting as if the taxpayer owns these companies and to oversee those benefits for our best interests. I have had it with Obama et al. pretending that there is nothing fundamentally wrong, that if they throw these asshats a life preserver that somehow the ship with the gaping hole in the side will still float.
The bonuses are a drop in an overflowing bucket and somebody needs to sit Larry and Timmy and Barry down and tell them the gig is up and they need to change their whole approach.
Oops, my typing got ahead of my thinking. Now that sentence makes sense.
I’d probably be completely hopeless except for Blair’s comment that the global financial meltdown is a national security issue.
That has upsides, and downsides. The upsides being that a group of government employees who are probably more used to taking action will have AIG in their sights.
I don’t fault Bernanke as much as some seem to — from what I can glean, Paulson is the genuinely hypocritical jackass with an addiction to ‘deals’ and so embedded in the Wall Street culture he doesn’t know his ass from a hole in the ground and his ego is as big as Texas. So between the two, it sure looks as if Bernanke had less authority to act, and then had to rein in Paulson — who was in charge of TARP and could only have done a worse job if he’d literally been putting that TARP money in hooker’s thongs.
I don’t see Bernanke, nor Fed employees generally, as temperamentally suited to going nose-to-nose with the AIGFP boyz. But Blair, IMHO, is just the guy to call bullshit on the AIGFP boyz.
And I sincerely hope that he does.
If so, I won’t bother with popcorn; I’ll be too damn busy with my pitchfork and my megaphone cheering him on.
Don’t forget Jim Jones.
OT for Mary- “Finger Steepling” at it’s finest. Scroll down.
How can it be a bonus if it’s handed out regardless of performance (whether company or individual)?
If it’s going to be paid to them anyway, then it’s compensation, just like their paychecks. And they should be required to pay the taxes on it … preferably retroactively.
This is my question. When is a bonus not a bonus? Well, I’d think that scheduling a “bonus” far in advance, regardless of conditions, ought to void any pretense that it’s a bonus.
Bob in HI
Good deal. Obama’s bracing for a bailout backlash.
Until some responsible party senior officer steps in to referee financial clever strokes schemes, gambling in “clever strokes” which constitutes the very essence of theft, swindling and all sorts of similar anti-social deeds will expand.
Here is the SEMTEX: I was directed to an FDIC website to verify a key difference between handling BANK failure compared to BUSINESS[AIG]failure. Using AIG as example…
AIG London office contracted circa $400Billion of insurance-like CreditDefaultSwaps, which AIG London could “guarantee with a measly $1B in-hand. All interested parties knew the absurdity of such “bets”. But, because CDS were and are unregulated, leverage like “too big to fail” presupposed national
governmentsas the silent guarantor. AIG failure to perform or even live up to a teensy-weensy contract item… like certain key persons are no longer employed…INSTANTLY allows counterparties to seize assets before ANY other creditor action is taken, even if AIG declares bankruptcy.A BANK can be handled by FDIC at any moment taking control and doing anything FDIC wants to break-up and sell-off pieces with no recourse. FDIC can act fast and without recourse only on a BANK.
AIG and counterparty clever-strokes have arranged for such horrendous consequences that they can blackmail governments!…which is presently occurring.
http://www.fdic.gov/bank/analy…..05fyi.html
It is long , so follows in next post are 3 paragraphs of EXCERPTS that make this clear…
I have two questions:
1) where’s Freep?
2) how the hell did Arizona get an at-large bid in the tournament?
3) Michigan. Also.
1) Skulked off dragging the new troll meat behind.
2) Beat some good teams early in the year, had a run late and has a 25 year long streak of being in the tournament. Let’s see St. Mary’s or Arizona. Okay, that is not that hard a choice.
3) A little harder; you betcha. But still, a nice story; why couldn’t they have bracketed them against West Virginia is my question.
Where have you been lately?
Let me just say that I’m not impressed with this argument, and leave it at that. St.Mary’s was 26-6.
.
I’ve actually been here at times, I read pretty much everything, but without much to add. An occasional comment or two, and amusement at the recent troll activity. A rather uncreative bunch.
Work is busy, and at home we’re in deep planning mode for the big day, which is now a little over 90 days away.
Oh, you’re just jealous of all our water we have here….
This is getting exciting!
Michigan??? Glory hallelujah! Illinois beat them pretty convincingly in the Big 10 tournament, and I’d given up on them.
Bob in HI
Sean Penn confirms role in ‘Fair Game’ spy flick
http://tinyurl.com/dlf94c
3 key excerpts. [short GLOSSARY at end]
http://www.fdic.gov/bank/analy…..05fyi.html
“While much has been written about the consumer bankruptcy parts of the Bankruptcy Act of 2005, other key parts of the bill have received little attention. For example, Title VIII adopts a new chapter 15 of the Bankruptcy Code that should make the administration of international bankruptcies much more predictable and effective. Title VIII, however, is probably not the most significant non-consumer part of the Act. That label better applies to Title IX and its restructuring of U.S. insolvency laws governing the financial markets….
Finally, while the FDI Act permits the receiver for a failed insured bank or thrift to transfer QFCs to new counterparties or to disaffirm the contracts and, thereby, limit the liability of the receivership estate, the Bankruptcy Code does not provide any similarly effective rights to a bankruptcy trustee. The immediate transfer and repudiation rights provided to the FDIC as receiver for a failed bank or thrift give receivers greater flexibility and allows the FDIC to capture the value in a derivatives portfolio. While these powers are crucial to reduce losses to the deposit insurance funds and implement the least costly resolution strategy, they also can reduce the risks of market disruptions by providing a mechanism to maintain ongoing hedge transactions or other derivatives that continue to benefit the solvent counterparties as well as the receivership. This distinction between the FDI Act and the Bankruptcy Code could be significant in the insolvency of a major participant in the financial markets during times of market instability because the risk of market disruption could be greater from a failing non-bank participant since its counterparties would have no option but to immediately liquidate their contracts and dump collateral on the markets.12 This difference remains after Title IX. …
Finally, Title IX reconfirms that the FDIC can use its powers to fashion a flexible resolution for a bank with derivatives. The FDIC’s power to transfer QFCs to another open bank or to an FDIC-owned bridge bank within a business day after appointment of the FDIC as receiver allows the FDIC the flexibility to choose a resolution strategy that may retain the value in a portfolio of QFCs or maximize its value through more gradual sale. In addition, a transfer of QFCs to another bank or to a bridge bank also may avoid the potential market disruption that could result from an immediate liquidation of a large portfolio. This flexibility is one way in which the FDI Act continues to differ with the Bankruptcy Code, which allows counterparties the immediate right to terminate and close-out net their financial market contracts. This difference reflects the importance that U.S. law has on flexibility in bank resolutions principally to limit the losses to depositors and the deposit insurance funds, but also to reduce the potential for disruption caused by bank failures.Finally, Title IX reconfirms that the FDIC can use its powers to fashion a flexible resolution for a bank with derivatives. The FDIC’s power to transfer QFCs to another open bank or to an FDIC-owned bridge bank within a business day after appointment of the FDIC as receiver allows the FDIC the flexibility to choose a resolution strategy that may retain the value in a portfolio of QFCs or maximize its value through more gradual sale. In addition, a transfer of QFCs to another bank or to a bridge bank also may avoid the potential market disruption that could result from an immediate liquidation of a large portfolio. This flexibility is one way in which the FDI Act continues to differ with the Bankruptcy Code, which allows counterparties the immediate right to terminate and close-out net their financial market contracts. This difference reflects the importance that U.S. law has on flexibility in bank resolutions principally to limit the losses to depositors and the deposit insurance funds, but also to reduce the potential for disruption caused by bank failures.”
Bankruptcy Act of 2005 = On April 20th, President Bush signed into law the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (Bankruptcy Act of 2005).
FDI Act = Federal Deposit Insurance Act
QFCs = Qualified Financial Contract; includes, but not limited to, securities contracts, forward contracts, repurchase agreements, and swap agreements.
receiver = A bankruptcy practitioner appointed by secured creditors to oversee the repayment of debts. A person or entity, including a government agency, appointed to handle the assets and liabilities of a failed insured depository institution. The U.S. Congress requires the FDIC to be the receiver for insured federal depository institutions.
Title IX = a section of the 2005 Act
Bankruptcy Act of 2005 = On April 20th, President Bush signed into law the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (Bankruptcy Act of 2005).
FDI Act = Federal Deposit Insurance Act
QFCs = Qualified Financial Contract; includes, but not limited to, securities contracts, forward contracts, repurchase agreements, and swap agreements.
receiver = A bankruptcy practitioner appointed by secured creditors to oversee the repayment of debts. A person or entity, including a government agency, appointed to handle the assets and liabilities of a failed insured depository institution. The U.S. Congress requires the FDIC to be the receiver for insured federal depository institutions.
Title IX = a section of the 2005 Act.
Damn, second time in a day I’ve thought of Youngstown.
Just for the hell of it, what if we looked at Youngstown as a guideline for seizure? Are the contracts/agreements with the employees receiving bonuses different from those of unions? At the moment our government isn’t being asked to look at any one of them, but rather all of them en masse as block of employees.
And Congress at this point in time is angry on a bipartisan basis, reflecting the sentiment of the people; a president acting on this anger to seize AIG and assets within American jurisdiction might be exercising powers at their greatest strength and not at their “lowest ebb”…
Assuming, of course, that Congress could draft and pass the equivalent of an “Authorization to Use Economic Force” (AUEF) to empower the president to seize AIG.
The justification of the seizure would also have to be carefully made; is there a case for a kind of “clear and present danger” in economic terms, as well as one for gross negligence bordering on malignance with regard to AIG’s fiduciary duties and responsibilities?
And maybe AIG and a few other entities like it are the real reason the Obama administration doesn’t really want to relinquish any executive powers just yet…
Bankruptcy appears to be so much easier — but the fallout to foreign governments and entwined business interests is so big and so dispersed that it might be a greater economic risk to turn our backs on AIG instead of seizing it and putting what remains of the full faith and credit of the U.S. behind it.
Gah. What an ugly mess. Maybe I just need some sleep so I can quit thinking of government seizures of corporate property…
IMHO, and speaking as a lawyer, seizure is not the way to go.
Taxing the shit out of them and their bonuses is.
And, someone else (minnesotachuck) asked if this is “Terrorism”. If you go read the definitions of international terrorism and domestic terrorism (below), you’ll see a case (a logical case, if not a legal one() can easily be made that AIG’s executives’ acts (shaking down the government for more money to line their pockets with) do fall within the definitions.
18 U.S.C. 2331:
Before you all go getting bent out of shape over going after these clowns as terrorists, keep in mind that Spitzer went to D.C. to testify about AIG and how they were going to make a mess of things, and that that was the trip on which he met the hooker whose business wound up being his demise. While there were any number of people on Wall Street who had a knife out for Spitzer’s back, the timing of what he testified to followed by what happened to him is instructive.
More useful and (more importantly) more likely to succeed would be a move in Congress to harness the broad-spectrum of populist anger at AIG and the bonuses and quickly enact both re-regulation of the financial markets and substantial taxation not only on the individuals and bonuses (i.e., selected income tax hikes) but also excise taxes on the instruments (CDOs and CDSs) themselves. The CDO and CDS instruments do have legitimate uses, but it is a case of them having been abused, misused and overused. So, their use needs to be tempered by the application of excise taxation.
And, despite the Rethugs’ antipathy toward taxation, any opposition they might bring forward could be easily painted – in the current very angry climate (a climate in which they are part of the angry populist side, too) – as being a friend of the greedy bankers who are holding up the economy and driving the ordinary Joes the Plumber into further deprivation.
A nice piece of jiujitsu and one which can be pulled off, if Obama has the balls to try.
I like this idea very much. We don’t have the really unified political power on Capitol hill that we need, so this kind of populist uprising could enable some DFH House members (if there is such a thing) to write the regulations without interruption or limitations.
If your theory of what happened is true, that is more evidence that Stiglitz, and Krugman, and James Hamilton of Econbrowser, and James K Galbraith, and Martin Wolf, and Simon Johnson… and many more, have been correct: determine solvency via audits, and close them down if insolvent. That would be more evidence that Stiglitz was correct that it will be better to deal with the consequences of the insolvency of these mega-firms directly, rather than indirectly by keeping these zombies alive to drink more blood. Or do zombies eat living brains, I’ve forgotten. AIG looks like it would do both, if this were a horror movie.
And if your theory is true, then Geithner and Summers might be more properly described as Gutless Wonders, rather than members of the Old Boys Club (though those two things are not mutually exclusive).
Give us teh money or teh banking system swims with the fishes.
When, where, and how did the U.S. government acquire a legal obligation to back AIG’s silly-ass contracts that make the departure of an executive a contractual of DEFAULT? Frankly, I don’t believe it. IMHO, it’s a crock of shit.
Jane has a new post up at the mothership–El Salvador is free
Sorry the bad edit. Here is short version of FDIC text:
SHORTER VERSION OF TEXT:
“…most significant non-consumer part of the [2005 Bankruptcy]Act … applies to Title IX and its restructuring of U.S. insolvency laws governing the financial markets….
…while the FDI Act permits the receiver for a failed insured bank or thrift to transfer QFCs to new counterparties or to disaffirm the contracts and, thereby, limit the liability of the receivership estate, the Bankruptcy Code does not provide any similarly effective rights to a bankruptcy trustee. The immediate transfer and repudiation rights provided to the FDIC … This distinction between the FDI Act and the Bankruptcy Code could be significant in the insolvency of a major participant in the financial markets during times of market instability because the risk of market disruption could be greater from a failing non-bank participant since its counterparties would have no option but to immediately liquidate their contracts and dump collateral on the markets.
…the FDIC can use its powers to fashion a flexible resolution for a bank with derivatives…within a business day after appointment of the FDIC as receiver… the FDI Act continues to differ with the Bankruptcy Code, which allows counterparties the immediate right to terminate and close-out net their financial market contracts.
Bankruptcy Act of 2005 =…President Bush signed into law
FDI Act = Federal Deposit Insurance Act
QFCs = Qualified Financial Contract; includes, but not limited to, securities contracts, forward contracts, repurchase agreements, and swap agreements.
receiver = appointed to handle the assets and liabilities of a failed insured depository institution [bank,thrift etc.].
Title IX = section of Bankruptcy Act of 2005
Wow. For people who just had no idea that the economy could have done what it did in the past 18 months, they sure seemed to have made sure to ironplate their backsides.
And powerful bullshit deflectors on their frontsides.
Is this the Fidelity that handles all GM’s retirement checks, retirement (401K) funds and health care?
http://boston.bizjournals.com/…..ily47.html
How in the world can a company have so many shares of stock? Is that legal?
We’re keeping the wrong terrorists at Gitmo…
AIG = Allowing Irreversible Greed.
AIG = All in Greed.
AIG = Arn’t I Greedy.
AIG = A$#holes, in general.
This is sick. Why in the world are we helping these companies that keep sending millions to people who do not know how to run a company? They cry yet get paid millions on the “average joes” taxes. Furthermore, I fear this is just the tip of the iceberg. Look what Enterprise rent-a-car did to get bailout funds:
http://www.butasforme.com/2009…..out-money/
Not to make excuses for these people, but the bailouts are making crooks out of everyone that touches the money.
that’s not an excuse it’s an indictment, plus they were the thieves who gambled the money away in the first place, it is REDICULOUS we gave them more
the answer is to simply create a fund that the company can tap without application for specific purposes that like loans to business, and they can tap the reserve for other purposes with an application, all funds must leave a paper trail
that’s the simplest most prudent method for distributing the liquidity we need
Where’s Robespierre when you need him?
What’s needed here is to not only call there bluff, but to bust them wide open. A combination of FBI US Grand jury, Interpol – MI5/6 is needed for europe. Asia as well. Take out both sides of these deals to remove the blackmail threat. Then attack the threat itself. The deal makers and their management need to go down hard.
Then break up AIG, on second thought. Do that first.
If we, taxpayers, now “own” the contractual liability and obligation then we need to see every contract and be able to publish a list of names of those benefiting from the contractual fulfillment. Show us the notes AIG.
Maybe we’ll discover a pattern or a clear connect-the-dots as we study the list of names we are obliged to pay.
Like bmaz said:
“Perhaps we should make them receive their bonus payments in pennies and collect it on live teevee for the world to see.
We just need to be more creative here……”
I don’t know if it’s essential for the public to see that list, but certainly the government should have it. There might be some foreign names on the list too.
Take the hit. Get rid of the thugs. In the long run, it will be worth it.
Have the IRS file a friend of the court summons..
http://taxprof.typepad.com/tax……html#more
so here’s a scenario;
the bonus’s are not payed, aig supposedly gets sued by these people who claim some kind of contractual breach
big frigging shit
we let aig get sued to which none of the settlments can have anything to do with the government’s assets
bing, they go into recievership, declare their bankruptcy, the judge decides which contracts are payed first and last
NONE of those payments are made with government money, it all has to be payed by aig.
I seriously doubt they go through with their transparent attempt at blackmail and if they do, big frigging deal
government bailout money is NOT aig’s money to be attached in any suit
36 -isn’t it though.
On the AIG contracts, this kind of thing is what the problem was from the beginning on the derivatives – everything off the books, a gambling set up that was unfunded and no one had a good mechanism for tracking the extent of exposure, etc.
Without knowing more, I think some of the most effective response might be via a state AG, with an action to declare the contracts unenforceable because they require the payment of illegal fraudulent conveyances (payments to insiders while the entity is insolvent – has debts in excess of assets) I don’t know where the ’situs’ is for the entities involved, but I’d guess NY for some/many? I don’t know what state law preference or fraudulent conveyance laws there are in NY, but most states have something, and if you can credibly allege an invalid purpose in the Ks to avoid state law prohibitions, I think you might be able to void some provisions of the K. fwiw
Publish the names of all the extortionists, demanding gifts “or else.” If they’re so proud of these bonuses, let them see their name in every newspaper, on every blog!
90- I don’t have good feelings either. Pakistan has the same problem that we have here, different “parties” but the same corruption and meglomania in the only available leaders.
O/T. Arrrrrrrrrrrrrrrrrrgh! SSDD (or different administration, anyway)
http://rawstory.com/news/2008/….._0315.html
It’s worth remembering that not all people with criminal instincts turn into Mafioso. Some of them do heed Don Corleones admonition to his consigliere–”You can steal more with a briefcase than you can with a gun”.
Amorality is in the suites and the streets.
Jane’s post indicates that administration officials (or an official) have said that Treasury did a legal analysis on why the contracts are enforceable. Is that analysis going to be released? Bc I don’t buy for a second that they couldn’t come up with a decent argument that the contracts were securing fraudulent transfers and/or were void or voidable in provisions or entirety as being violations of public policy.
for fun i googled “AIG insurance claim dispute” and my what a treasure trove. among the lowlights:
from page 8 of link
OT
Sean Penn as Joe Wilson.
Marcy as Emptywheeler, fastest live blogger in DC…
http://www.thedailybeast.com/b…..the-movie/
Naomi Watts as Plame
King Kong as Rove
Michael Steele as Ted Wells …
Ari as Ari?
There has to be a role for Dreyfuss …
I don’t know. Do you think Marcy looks enough like EW to play the role? Heh.
NYT reports “Obama Orders Treasury Chief to Try to Block A.I.G. Bonuses”
http://www.nytimes.com/2009/03…..ma.html?hp
I don’t get this. Are they simply defining the terms of “default” to their advantage, saying not paying bonuses amounts to a form of “default”?
nationalize the shitpile all round the world, and dismantle the contracts.
Important difference between welfare recipient and AIG/FP is that welfare recipients have been determined by the government to have met criteria for receiving welfare that were written and decided upon before and independently of the individual with a gun applying for his benefits.
As a recipient of entitlement benefits, I resent the asserted equivalence between the two classes of recipients. And speaking as a citizen, I can’t readily agree that our government’s actions are likewise philosophically, logically or morally equivalent across the cases of the two groups.